Other things constant, an increase in the expected inflation rate will
A) decrease the inflationary premium.
B) increase money (nominal) interest rates.
C) increase the supply of loanable funds.
D) decrease the money interest rate.

Question

Quizplus · Accepted Answer

An increase in the expected inflation rate will lead to an increase in money (nominal) interest rates. This is because lenders will demand higher interest rates to compensate for the future loss of purchasing power due to inflation.

Other Things Constant, an Increase in the Expected Inflation Rate